Published On : 02/01/2024

Oil prices buoyed by US signals on interest rate cuts

By Stephanie Kelly

NEW YORK (Reuters) -Oil prices edged higher on Thursday, boosted by the U.S. Federal Reserve signalling a possible start to interest rate cuts in coming months.

Brent crude futures were up 61 cents at $81.16 a barrel at 11:23 a.m. EST (1623 GMT). U.S. West Texas Intermediate crude futures were up 62 cents to $76.47.

There was limited immediate price impact after two OPEC+ sources said the group would decide in March whether or not to extend voluntary oil production cuts in place for the first quarter, after a ministerial panel meeting made no changes to the group’s output policy.

OPEC+ currently has 2.2 million barrels per day (bpd) of voluntary oil production cuts, announced last November.

Federal Reserve Chair Jerome Powell on Wednesday said interest rates had peaked and would move lower in coming months, with inflation continuing to fall and an expectation of sustained economic growth.

Lower interest rates and economic growth help oil demand.

Powell declined to promise that rate cuts would come as early as the Fed’s March 19-20 meeting, as investors had hoped.

The U.S. also released on Thursday data showing worker productivity grew faster than expected in the fourth quarter, keeping unit labour costs contained and giving the Fed another boost in the fight against inflation.

U.S. manufacturing stabilized in January amid a rebound in new orders, but inflation at the factory gate picked up.

The Institute for Supply Management (ISM) said on Thursday that its manufacturing PMI increased to 49.1 last month, while economists polled by Reuters had forecast the index dipping to 47.0.

“Data from ISM came in stronger than expected, which is good for oil demand and supportive for prices,” said Phil Flynn, analyst with Price Futures Group.

In China, the world’s second-biggest economy, leaders revealed new support measures to help to reduce fallout from the liquidation of property developer Evergrande.

Analysts at JPMorgan said they expected China to remain the single largest contributor to global oil demand growth in 2024, forecasting that Chinese demand would increase by 530,000 bpd, having jumped by 1.2 million bpd last year.

In another glimmer of better economic news, the downturn in Germany’s manufacturing sector eased in January, a survey showed.

In the Middle East, worries over attacks by Yemen-based Houthi forces on shipping in the Red Sea are driving up costs and disrupting global oil trading. The Houthi group also said it would keep up attacks on U.S. and British warships in what it called acts of self defence.

“The energy market remains on edge as it waits for a U.S. response to the drone attack on American troops in Jordan,” ANZ Research said in a note.

(Reporting by Stephanie Kelly in New York, Paul Carsten in London, Katya Golubkova in Tokyo and Florence Tan in SingaporeEditing by David Goodman, Mark Potter and Paul Simao)

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